Insights
What is an
Every time you process a credit or debit card payment, you pay an interchange fee, sometimes called a swipe fee. Interchange fees are set by the card networks and typically represent about 80% of the total cost of processing card payments. All interchange fees are passed to the bank that issued the credit or debit card used in the transaction. For instance, if a customer uses a Chase Sapphire Preferred Card, then the interchange fees are collected by JP Morgan Chase Bank. Interchange fees pay for the points, miles, cash back and general rewards that we receive from using our credit cards. Interchange fees also represent significant source of revenue and profit for issuing banks.
Optimizing payments to lower these fees is essential for any merchant looking to enhance their margins. In this guide, you will learn what are interchange rates, the average interchange fee, and how to lower your costs.
CARD SWIPE
The customer swipes their credit card with the merchant to make a purchase.
Acquiring Bank
The merchant sends the transaction to the acquiring bank who takes a cut.
Issuing Bank
The acquiring bank sends the transaction to the issuing bank who takes a cut.
Transaction Completes
The aquiring bank sends the completed transaction back to the merchant.


What is an Interchange Fee
These fees cover the issuing bank’s costs of offering payment products to consumers and businesses, and also pay for rewards, fraud and risks borne by the bank.
But what is an interchange fee?
While a swipe fee is unavoidable if your business chooses to accept card payments, there are actions you can take to lower your costs. Comparing merchant service providers, harnessing the power of data via Optimized Payments, and finding the right pricing model can lower your costs.
Examples of Common Fees



Visa
1.4-3.25% for credit cards
MasterCard
1.5-3.25% for credit cards
American Express
2.3-3.5% for credit cards
Discover
1.55-2.5% for credit cards
Interchange Fee Rates
Card Network
Credit vs. Debit
Interchange fees for credit cards are always significantly higher than those for debit cards. The reasoning behind these higher rates is that credit card transactions are much riskier for issuers.
Debit cards are also less expensive due to regulations/caps imposed by the Durbin amendment.
Type of Card
Data Compliance
Type of Sale
Merchant Category Code (MCC)
How Can I Lower Interchange Fees?
Credit card interchange rates weigh heavily on merchants. While they are a natural cost of doing business, you can implement actionable strategies to optimize your business infrastructure for low-cost swipe fees.
Leverage Your Data to Optimize
Tremendous insights from payments data can be leveraged to drive millions in cost savings and improving authorization rates. Optimized Payments has built a scalable cloud platform that can consume billions of transactions to provide KPIs, benchmarks and actionable insights. For example, Optimized Payments’ analytics can help you optimize your interchange rates and identify least-cost routing strategies.
Check Your Merchant Category Code (MCC)
Your MCC influences swipe rates. Every merchant receives a code assigned by card brands based on the products/services they offer and their industry.
Double-check your MCC to ensure you are being charged the correct rate. You could also split your business into separate MCCs to route transactions more cost-efficiently if you have more than one line of business.
Limit Card Acceptance
Some cards cost more to process than others. Use your data to analyze which payment methods your customers favor. If less than 5% of your customers use a card with the highest rates, prohibiting said cards could help you reduce your costs. For instance, you can disable the acceptance of Visa credit cards and accept only Visa debit cards.
However, you must balance cost savings with fulfilling your customers’ needs.
Implement Address Verification Services (AVS)
Visa and MasterCard provide global support for AVS, with Visa actively incentivizing merchants to use AVS solutions through lower swipe fees.
Settle Transactions Daily
E-commerce merchants have additional complexity because an authorization is typically valid for 7 to 30 days (7 days for MasterCard and 30 days for Visa). If the time between authorization and settlement exceeds this range, the best practice is to reverse the original authorization and obtain a new authorization.
Initiating the clearing call for a transaction within the allowed timeframe between authorization and settlement qualifies merchants for the lowest interchange rates.
Submit Level 3 Data
The
Take advantage of Optimized Payments’ proprietary analytics platform and professional payment consulting services to leverage the data you already have. We have helped some of the biggest household names save millions, including Apple, Charter Communications, and Verizon.
Request your free demo to discover how you can become the hero of payments at your organization.